Volkswagen has announced plans to invest up to $5bn (£3.9bn) in US electric carmaker Rivian, as manufacturers rethink their strategies amid uncertain demand.
The German car manufacturer said it will initially hand $1bn to Rivian, which aims to compete with Tesla by offering so-called “electric adventure vehicles”.
The joint venture will give VW immediate access to Rivian’s technology, clearing the way for a further $4bn of investment by 2026.
The new venture will be “equally controlled and owned” by VW and Rivian, the companies said.
It comes as the electric car sector is grappling with challenges from weakening demand and the risk of a trade war with China.
The latter has been exacerbated in recent weeks as both the European Union and the US have said they will impose tariffs on Chinese electric vehicles (EVs).
The German automotive industry has opposed the introduction of tariffs amid fears that China could hit back with retaliatory measures that harm manufacturers such as BMW and Daimler.
Following the deal, Erik Gordon, a professor at the University of Michigan’s Ross School of Business, told Bloomberg that the “cost of continuing to go it alone is too high” for manufacturers.
This is against the backdrop of a slowdown in sales and high inflation, which has forced carmakers to scale back production.